“We have now instructed our legal representatives to prepare a challenge to the PAC’s decision,” Mr Hayes said.

Construction of the underground mine could start as soon as next year.

The PAC approved the mining of up to five million tonnes of coal for 25 years. The coal would be exported to Korea for use in power stations.

The mine was first approved in 2010, only for the Labor state government to intervene and block the project.

Mr Hayes said the mine must again be stopped – this time for ever – because of the unacceptable risk it posed to the Central Coast’s water supply.

“Our waterways are essential to the growing population of the Central Coast and this mine will adversely impact on the water supply for decades to come,” he said.

Alan Hayes.

In handing down its decision to approve the mine, the PAC conceded there was a risk of serious and irreversible damage to the water supply for more than 300,000 people, but that risk could be managed.

“The commission has found there is a small risk of impacts including to the drinking water catchment, and a small level of scientific uncertainty to these. On that basis the commission is satisfied the threat of serious or irreversible damage is very low,” the PAC said.

Mr Hayes said the Central Coast had a similar sized population to Darwin or Canberra, yet its water catchment was only one-tenth the size of the catchments of either of those cities.

“The Wallarah 2 mine cannot proceed until the Commonwealth has given approval, since it is deemed a controlled action under the Environment, Protection and Biodiversity Control Act,” he said.

Mr Hayes said claims made by the mine’s proponents about the anticipated benefits to flow from the project could not be believed.

“Claims by the mining company are grossly untrue as they continue to use weasel words to extoll the advantage of their mine,” he said.

“The PAC found that their economic claims were not credible and that the total gross revenue to the state for the life of the mine was only $274 million (about $9.7 million per year) and could be as little as $128 million.”

Wyong Coal, the proponents for the mine, said the Department of Resources and Energy had assessed the mine would generate royalties of $30 million for the state during a “typical full production year”.